Business Research Project: Christopher Abgande Lee Devaughan

Business Research Projectchristopher Abgande Lee Devaughan Sheri Leb

Business Research Project

Dyeus Airlines, an international airline founded in 2013, is exploring a strategic change by waiving all excess luggage fees to enhance competitiveness amidst larger airlines worldwide. This initiative involves eliminating charges for the first two checked bags, provided they do not exceed 50 pounds each, aiming to reduce flight delays, improve turnaround times, and attract more passengers through lower overall costs.

The core hypothesis is that halting baggage fees will facilitate faster boarding and deplaning, leading to punctual flights and decreased delays, which are costly expenses for airlines due to fuel consumption and passenger dissatisfaction. The dependent variables include the airline’s flight costs compared to competitors, overall passenger expenses, and the frequency of flight delays. A secondary dependent variable is expected to be the volume of travelers, driven by lower baggage-related expenses.

The independent variable is straightforward: Dyeus Airlines will no longer impose baggage fees. This change is presumed to influence the dependent variables positively, although it also entails risks. The industry faces challenges such as revenue loss, driven by the removal of baggage fees which currently contribute to earnings, partly due to fuel cost savings from lighter loads and the avoidance of certain taxes, like the 7.5% federal excise tax on airfare related to unbundled services.

The business problem stems from the fact that airlines charge extra for additional bags primarily to offset higher fuel costs and taxes. According to Leff (2015), the federal excise tax applies only to airfare and not ancillary services, prompting airlines to unbundle services to maximize revenue. Loss of baggage fee income may be offset by savings on fuel costs via lighter aircraft loads, and by potentially recouping some revenue from the transportation fee itself. However, the shift could also lead to lower profitability for airlines reliant on baggage fees, possibly discouraging fleet size expansion and reducing market share over time.

Historically, the airline industry witnessed a significant revenue downturn during the 2009 economic recession, exacerbated by rising fuel prices and increased operational costs (Garrow, 2009). To compensate, airlines implemented additional charges for services like baggage, which also affected customer demand. Reducing baggage fees could, theoretically, increase passenger volume by making travel more economical, but airlines might be reluctant to do so due to potential profit loss.

Moreover, the issue of flight delays significantly impacts operational costs. Studies, such as those by Guy (2017), indicate that delays cause billions in expenses annually, mainly due to higher fuel consumption and customer compensation costs. Strategies that reduce turnaround times, like waiving baggage fees and streamlining luggage handling, could mitigate delays and associated expenses, ultimately reducing ticket prices and increasing demand.

Customer behavior also influences airline revenues. Research by de Wit and Zuidberg (2012) suggests that travelers are incentivized to carry lighter luggage to avoid fees, often dividing their belongings into multiple smaller bags under the weight limit to evade charges. Eliminating baggage fees may alter these behaviors, potentially increasing luggage weights and complicating weight management, thereby affecting fuel efficiency and operational planning.

Nevertheless, the profitability of baggage fees remains contested. Barrett (2004) argues that ancillary charges like baggage fees are crucial for airlines, especially low-cost carriers, as they help cover increased operational costs and taxes. Removing such fees might benefit consumers in the short term but could threaten airline financial stability, leading to a potential reduction in service quality, flight frequency, or even market exit for some carriers.

In conclusion, dyeus Airlines’ decision to waive baggage fees is a strategic initiative aimed at reducing delays, lowering costs for consumers, and potentially increasing market share. However, this approach also involves significant risks related to revenue sustainability and operational costs. Careful management of weight and fuel costs, coupled with clear customer communication about baggage restrictions, will be essential for the success of this policy change. Future research should monitor operational metrics, customer satisfaction, and financial outcomes, ensuring that the benefits outweigh the adverse effects of such a fundamental shift in revenue model.

Paper For Above instruction

In the highly competitive airline industry, strategic innovations are essential for differentiation and profitability. One such strategy is the reconsideration of baggage fee policies, which constitute a significant component of airline revenues and operational costs. Dyeus Airlines' decision to eliminate baggage fees for the first two checked bags exemplifies an innovative approach aimed at reducing delays, improving customer satisfaction, and refining operational efficiency.

Operational Efficiency and Delay Reduction

Flight delays are a major issue impacting airline profitability and customer satisfaction. Studies such as Guy (2017) have quantified the enormous costs associated with delays, citing figures in the billions of dollars annually in the United States alone. Delays are caused by multiple factors, including baggage handling bottlenecks. By waiving baggage fees, Dyeus Airlines aims to streamline the boarding process, as passengers are less incentivized to ration their allowance of luggage to avoid fees, thereby reducing the time spent loading and unloading. This approach aligns with research from Garrow et al. (2012), which indicates that unbundling services, such as baggage fees, influences operational schedules and costs. The anticipated result is quicker turnaround times, fewer delays, and savings in fuel consumption and personnel expenses.

Financial Implications and Revenue Strategies

The removal of baggage fees shifts the revenue model, potentially reducing income derived from ancillary charges. According to Leff (2015), airlines unbundle services like baggage to circumvent the 7.5% federal excise tax on transportation fees. This tax strategy creates a revenue advantage for unbundled services and influences airlines’ cost structures. Waiving baggage fees could lead to revenue decline unless offset by other measures such as fuel savings from lighter aircraft loads or increased passenger volumes. Fuel hedging, as discussed by Garrow (2012), can mitigate fuel cost fluctuations, providing predictable expenses that facilitate fare adjustments.

Customer Behavior and Market Dynamics

Customer behavior plays a pivotal role in the effectiveness of baggage fee policies. Research by de Wit and Zuidberg (2012) illustrates that passengers tend to pack efficiently when fees apply, sometimes dividing belongings into multiple lighter bags to avoid charges. Removing fees could encourage bulkier luggage, potentially increasing aircraft weight and fuel costs, thereby countering operational savings. Conversely, it could also motivate passengers to pack lighter to maximize their convenience, depending on the communication and enforcement of luggage restrictions.

The competitive landscape is sensitive to such policy shifts. Barrett (2004) notes that ancillary revenues, including baggage charges, are integral to low-cost carriers' profitability. Eliminating baggage fees may diminish these revenue streams but could also attract a segment of price-sensitive travelers, increasing overall market share. This trade-off underscores the importance of comprehensive revenue management strategies that need to incorporate potential gains from increased passenger volume and reduced delays against the loss of ancillary income.

Market Demand and Competition

Reducing baggage fees could influence market demand dynamics. While some consumers may be drawn by lower costs, the overall impact on airline profitability hinges on balancing increased volume against diminished ancillary revenues. Historical data from the post-2009 recession period indicates that fee-based revenue models helped airlines recover from downturns caused by economic and fuel price shocks (Garrow, 2009). A significant shift may lead to a restructuring of the competitive environment, with potential winners and losers based on the ability to adapt operationally and financially.

Conclusion

The initiative by Dyeus Airlines to waive baggage fees reflects a strategic move towards enhanced operational efficiency and customer-centric service. While promising in reducing delays and possibly attracting more passengers, it entails risks related to revenue streams and operational costs. In the long term, success will depend on the airline’s ability to manage weight, fuel costs, and customer expectations effectively. Integrating advanced operational analytics, effective communication, and dynamic pricing strategies will be vital. Future research should focus on empirical data collection and analysis to assess the real-world impacts of such policies, including passenger satisfaction, operational metrics, and financial viability.

References

• Barrett, S. D. (2004). How do the demands for airport services differ between full-service carriers and low-cost carriers? Journal of Air Transport Management, 10(1), 33-39.
• Garrow, L. A. (2009). The impact of fuel price fluctuations on airline operational costs. Transportation Research Part A.
• Garrow, L. A., Hotle, S., & Mumbower, S. (2012). Assessment of product debundling trends in the U.S. airline industry: Customer service and public policy implications. Transportation Research Part A. doi:10.1016/j.tra.2011.09.009
• Guy, A. (2017). Flight delays cost $32.9 billion, passengers foot half the bill. Berkeley News.
• Leff, G. (2015). The real reason airlines charge checked bags fees... and it's not what you think. Scottis: Retrieved from.
• de Wit, J. G., & Zuidberg, J. (2012). The growth limits of the low-cost carrier model. Journal of Air Transport Management, 21, 17-23.
• Scotti, D. (2015). The impact of baggage fees on passenger demand on U.S. air routes. Transport Policy, 43, 4-10. doi:10.1016/j.tranpol.2015.05.017